The Canadian bond prices, which have been spiralling lower in recent months, followed US Treasuries higher on Friday as dealers opted for the security amid US subprime loan and credit worries.
"There's a mild flight to quality on the back of instability in the subprime mortgage market as well as credit markets getting nervous over the glut of high-leveraged financing deals going on," said Chris Holmes, fixed income strategist at J.P. Morgan Canada.
"In those environments, Canada will typically underperform the move in the US but still follow the direction of yield changes." The two-year bond gained 8 Canadian cents to C$98.48 to yield 4.612 percent, while the 10-year bond increased 35 Canadian cents to C$95.95 to yield 4.560 percent.
The yield spread between the two-year and 10-year bond moved to -5.5 basis points from -4.7 basis points at the previous close. The 30-year bond was at C$108.75 to yield 4.466 percent. In the United States, the 30-year treasury yielded 5.060 percent. The three-month when-issued T-bill yielded 4.53 percent, unchanged from the previous close.